Volatility has whiplashed the dairy industry for the past two years, and it’s not going to go away.
It’s guaranteed that there will be a second and third financial crisis at some point in the future. In order to survive and be in business in the future, you must get your financial house in order, Gary Sipiorski, dairy development manager with Vita Plus Corp., in Madison, Wis., told dairy farmers and calf raisers at the Dairy Calf and Heifer Association meeting Tuesday in Lake Geneva, Wis.
To weather impending financial crisis, Sipiorski shared eight financial rules that should never be broken.
- Have a 2:1 liquidity, current assets to current liability.
- Don’t spend more than 20 percent of your milk check to pay principle and interest.
- Expense rate cannot be more than 85 percent.
- Do not have more than $3,000 to $5,000 debt per cow or $20 per hundredweight in debt.
- Have greater than 30 percent equity
- Have a three-year asset turnover rate. For example, if you have a $1 million operation, do you generate $300,000 in gross income each year?
- Return on assets needs to be 8 percent.
- Know your cost of production.
We don’t know when the next financial crisis will happen, but you can prepare yourself for the future. And, if you want to have a future, this is what you have to do, notes Sipiorski.